Major cryptocurrency exchanges including Binance, Coinbase, Gemini, and Kraken have been experiencing operational issues in the past week due to high workload. That is, users made a lot of transactions, thereby loading the platforms.
The reason for the increased activity of traders was primarily the rapid rise in the price of Bitcoin above the $ 40,000 line. Now all the major crypto exchanges are working on increasing their bandwidth, but some of them, for example, eToro, decided to take a more radical path. They “slowed down” the growth of demand for cryptocurrency trading by increasing the minimum deposit from $ 200 to $ 1000. Thus, they want to contain the influx of newcomers to the market.
First, a little explanation. Cryptocurrency exchanges primarily earn on commissions that are charged to users for conducting transactions. Accordingly, the more traders and the more often they carry out transactions, the more money goes to the trading platforms.
However, there is also a downside to the situation. The serious growth of Bitcoin and other cryptocurrencies leads to the emergence of the so-called FOMO, that is, the syndrome of lost profits. Inexperienced investors feel the fear of losing earning opportunities and therefore buy coins closer to their price peak. This is most often followed by a crash, which scares traders even more. As a result, they sell the asset on the collapse of the price and end the cryptocurrency adventure in the red.
It is against such cases that the management of one of the cryptocurrency exchanges decided to insure users. Still, many novice traders are unlikely to dare to enter the niche with a thousand dollars and prefer to watch the situation further. As a result, it will cost someone the money saved.
Differences between cryptocurrency exchanges
In an interview with the news outlet Decrypt, eToro’s head of public relations and communications, Amy Butler, said such a radical decision was necessary in the face of “unprecedented demand” for crypto. In any case, more than 17 million users of the site can continue to trade digital assets without interruption. Here is her quote, in which she shares the reasons for what is happening.
In the first week of 2021, we saw days with over 40 thousand new registered users per day and cryptocurrency trading volumes 10 times higher than last year.
That is, a company representative notes the incredible growth demand for cryptocurrencies. It is important to note that this is already happening when Bitcoin not only updated its historical maximum from 2017 at the level of 20 thousand dollars, but also exceeded it twice. It is obvious that it is very risky to enter at such levels – but this is exactly what traders do without much experience amid panic.
As a reminder, as early as January 1, Bitcoin was trading below the $ 30,000 line. Most recently, he made an attempt to break above 40 thousand dollars and even briefly entrenched above 41 thousand. As a result, the absolute maximum of the rate is the level of $ 41,940, which BTC took on January 8th.
BTC dropped noticeably tonight, reaching the $ 32,850 line. At the same time, just a day ago, the coin was traded in the zone of 40 thousand dollars, which means for beginners it was a real chance to lose money. That is, in fact, the exchange’s initiative really saved some players from losing funds.
Kraken Chief Commercial Officer Bobby Zagotta also stated that the trading platform “is seeing a record level of registered users per day, which exceeds the records of the previous 2017 bull run.” The sharply increased load on the exchanges can become a serious reason for the integration of innovations, says Paul Veradittakit, partner of the venture capital company Pantera Capital. Here is a quote from him.
We think there will be a lot more fuel for new users in this bull run. This is a great opportunity for centralized exchanges to gain market share by making their user experience and identity verification process more efficient, better communication with larger customers, and better support for all customers.
Here, the expert makes it clear that new customer support measures will enable exchanges to gain a new user base and expand their presence in the niche. So in the near future, traders should probably expect some innovations.
EToro says it’s not just cryptocurrencies that attract new users. Stock market optimism, as well as rapid rallies in stock prices such as Nio, Tesla, Palantir, Moderna and Alibaba, are fueling fresh blood. For example, this is how Tesla’s stock chart looks for the last six months – and it confirms the analyst’s words.
We believe that the positive news about the outcome of the crisis amid the coronavirus pandemic – we are talking about the distribution of the first vaccines – plays a key role in these processes. In other words, the markets “wake up” after all the catastrophic events of 2020, and investors are optimistic about the future.
At the same time, the very idea of restrictions for new users seems logical – at least for their own well-being. Perhaps it makes sense to also think about not only limiting the minimum deposit amount, but also limiting the size of the deposit in general. That is, to enable newly minted investors to invest money, but in a limited amount.
We believe other platforms may take over similar initiatives in the future. Still, the growth of the cryptocurrency market clearly did not stop at this stage, which means that in the future, the influx of newcomers will be even more noticeable. So there will still be a sense in such actions.